Tuesday, February 2, 2010

In the Washington Post, columnist Allan Sloan points to Social Security's funding problems:

Don't look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system. A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits. Instead of helping to finance the rest of the government, as it has done for decades, our nation's biggest social program needs help from the Treasury to keep benefit checks from bouncing -- in other words, a taxpayer bailout.

Some would argue – correctly, in some important ways – that Social Security isn't so much being bailed out as being repayed; after all, the federal budget has borrowed around $2.5 trillion from Social Security over that 25 years of surpluses and it's not unreasonable that Social Security ask for it back.

That said, there's some inappropriate anthropomorphizing of government programs here: "Social Security" isn't a person that lends or borrows. Rather, individuals are called on to finance borrowing or repayment, either through higher-than-needed payroll taxes in the past (when Social Security was the lender) or higher-than-needed income taxes in the future (when Social Security will need to be repaid). It's the point of view of citizens that matters, and from this point of view the real driver is simply costs: as the baby boom generation retires, Social Security costs will rise. And those costs must be borne by the working age Americans who support the program. 'Nuff said.

1 comment:

Fair enough, as a first approximation. Except I would have left the "in some important ways" qualifier off.

But I do have a quarrel with your categories of "individuals" "citizens" and "working age Americans" as if you are talking about the same pool of people in each case. Instead we have an obligation built up based on the contributions of a sub-set of "citizens" during the period they were "working age Americans". But there were a fairly sizable group of people who either didn't contribute at all (say a Trust Fund baby) or contributed based on a small fraction of their income.

To the degree that these excess contributions built up societal equity these non-contributers got a share, and since the time period in question was marked with three series of tax cuts largely directed at non-contributers, something at least partially funded with those contributions, one could argue an excessive share. It would seem fair, to me anyway, to explicitly recognize that as a consequence of their outsized share of that past productivity that THAT sub-group of non-contributers has a special obligation to meet the overall future claim of those who actually contributed.

Instead your formulation just throws any suggestion that an inequity imbalance from the past should be redressed in the future, instead just transferring that obligation to some undifferentiated group of working age Americans. And while I am sure you didn't mean it this way, that suggestion actually implicitly exempts non-working age non-contributer billionaires.

I am not holding a grudge here, I am not demanding reparations, or cap increases, or applications of FICA to returns on capital. Instead we have put forth a proposal that would backfill 100% of the actuarial gap with modest increases over the current payroll base. But that would still require cash transfers from the General Fund to redeem real Treasury securities that have real yield and real maturities and I see no reason why that burden should not fall proportionately on the sub populations that benefited in strict proportion to that benefit.

Instead we get proposals like LMS and what I can see of Walker's new one that would put all the burden on a new generation of contributers all while issuing a merry call of "All Ye, All Ye, Outs in Free" to the billionaires (when I was a kid I thought this was "Ollie, Ollie, Ox in Free", but then things didn't have to make sense when you are five).

In my mind 'Nuff said kind of glides past some of the more complex issues of equity. In my mind the starting point of about any economic policy question should be 'Cui bono' and not 'Macht Nichts'. Which to my ear is the tone being set here.

About me

I am a Resident Scholar at the American Enterprise Institute in Washington, where my work focuses on Social Security policy. Previously I held several positions within the Social Security Administration, including Deputy Commissioner for Policy and principal Deputy Commissioner. Prior to that I was a Social Security Analyst at the Cato Institute. In 2005 I worked on Social Security reform at the White House National Economic Council, and in 2001 I was on the staff of the President's Commission to Strengthen Social Security. My Bachelor's degree is from the Queen's University of Belfast, Northern Ireland. I have Master's degrees from Cambridge University and the University of London and a Ph.D. from the London School of Economics and Political Science. I can be contacted at andrew.biggs @ aei.org.